Oil & Gas

Platts: Egypt to put squeeze on Qatari LNG volumes

PlattsEgypt was one of four countries to cut diplomatic ties with Qatar in June because of its alleged support for terrorist groups.
Cairo currently relies heavily on Qatari LNG imports to make up its shortfall in domestic gas production.

In 2016, Egypt imported 7.32 million mt of LNG, of which 4.42 million mt or 60% was sourced from Qatar.

However, Egypt believes that rising domestic production will allow it to return to gas self-sufficiency in 2018/19, ending the need for LNG imports altogether.


Given the diplomatic crisis with Doha, it looks as if Qatari volumes will be squeezed first, as both Cairo’s gas import requirements and political strategy prove complementary.

Earlier this year, the government announced that state gas company EGAS had contracted with Russia’s Rosneft, France’s Engie and Oman’s OTI for 45 cargoes of LNG, implying a significant fall in Qatar’s share of the Egyptian LNG import market this year.

At the same time, EGAS has begun talks with suppliers over deferring 40 out of 70 contracted LNG shipments next year, before imports are completely halted.

In December, the government canceled a tender for a third FSRU (floating storage and regasification unit) that had only been launched six months earlier.

If it achieves self-sufficiency in gas, Egypt will have gone from an exporter to importer and back again in less than a decade.

Just seven years ago, Egypt was exporting around 7 million mt/year of LNG from its two liquefaction plants and intended to increase exports through the Arab Gas Pipeline as far north as Turkey.

However, energy subsidies encouraged domestic consumption, while upstream exploration failed to uncover substantial new discoveries, in part because of insufficiently attractive investment terms.

Then, on top of the gas supply crisis, came the Arab Spring, which was followed by years of political and economic instability.

The government eventually signed contracts for two FSRUs to import gas, the first starting up in 2015, and, in 2016, Egypt became one of the few countries in the world to both import and export LNG, as small volumes of LNG exports resumed after a complete cessation in 2015.

The resumption of exports reflects a real turn around in domestic production.
Eni’s Nooros Field has quickly established itself as the most important gas field in the country, while BP is also ramping up output on its West Nile Delta project.

The giant offshore Zohr field, which is being fast-tracked by Eni, will provide much of the new Egyptian production in the long run, while Egypt’s oil minister Tarek Al-Molla said in May that nine more gas projects will be developed over the next two and a half years.
However, the rapid turnaround in Egyptian gas fortunes is not just the result of rising output.

The years of political and economic uncertainty following the Arab Spring have constrained power, fertilizer, cement and industrial gas consumption.

In addition, Cairo has begun to cut subsidies on all fossil fuels.

The government may yet have to completely end subsidies in order to control consumption and balance its finances, but in this it will also be helped significantly by eradicating its gas import bill.

The implication for Qatar is that it is set to lose an important market for its LNG.

(Source: S&P Global Platts)


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s